Teekay Offshore Partners L.P.
NYSE : TOO

Teekay Offshore Partners L.P.

August 11, 2011 08:30 ET

Teekay Offshore Partners Reports Second Quarter Results

HAMILTON, BERMUDA--(Marketwire - Aug. 11, 2011) - Teekay Offshore Partners L.P. (NYSE:TOO) -

Highlights


--  Generated distributable cash flow(1) of $42.6 million in the second
    quarter of 2011, up 52 percent from the same period of the prior year. 
--  In June 2011, entered into a new long-term contract with BG Group plc to
    charter four newbuilding shuttle tankers in Brazil commencing in mid- to
    late-2013. 
--  In July 2011, completed a $20 million private placement equity offering
    to partially finance the four newbuilding shuttle tankers. 
--  Total liquidity of $294.0 million as at June 30, 2011.

Teekay Offshore GP L.L.C., the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE:TOO), today reported the Partnership's results for the quarter ended June 30, 2011. During the second quarter of 2011, the Partnership generated distributable cash flow(1) of $42.6 million, compared to $28.1 million in the same period of the prior year.

On July 22, 2011, the Partnership declared a cash distribution of $0.50 per unit for the quarter ended June 30, 2011. The cash distribution is payable on August 12, 2011 to all unitholders of record on August 5, 2011.

"The Partnership's strong second quarter cash flow reflects the full quarter benefit of our acquisition of the remaining 49 percent interest in Teekay Offshore Operating L.P. in March 2011," commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC. "The fundamentals for deepwater offshore oil production, storage and transportation continue to be favorable and we are encouraged by the high level of recent tendering activity in the sector. Our business development efforts have been yielding results and recently resulted in the award of a new long-term shuttle tanker contract from a subsidiary of BG Group plc in Brazil. This contract will be serviced by four newbuilding shuttle tankers, scheduled to deliver in mid- to late-2013."

Mr. Evensen added, "Our sponsor, Teekay Corporation, was recently awarded a significant new North Sea FPSO contract also with BG. This is positive for our future cash flow growth as the newbuilding FPSO unit should become eligible to be acquired by Teekay Offshore once operations under its charter contract commence in early 2014. In addition to our ability to secure projects or acquire vessels directly from third parties, the Partnership's sponsor, Teekay Corporation, also provides us with an important pipeline of future growth opportunities."

(1) Distributable cash flow is a non-GAAP financial measure used by certain investors to measure the financial performance of the Partnership and other master limited partnerships. Please see Appendix B for a reconciliation of distributable cash flow to the most directly comparable financial measure under U.S. generally accepted accounting principles (GAAP).

Summary of Recent Transactions

In June 2011, the Partnership entered into a new long-term contract with a subsidiary of BG Group plc (BG) to provide shuttle tanker services in Brazil. As previously announced, the contract with BG will be serviced by four Suezmax newbuilding shuttle tankers to be constructed by Samsung Heavy Industries for a total delivered cost of approximately $480 million. Upon their scheduled delivery in mid- to late-2013, the vessels will commence operations under ten-year, fixed-rate time-charter contracts. The contract with BG also includes certain extension options and vessel purchase options.

During July 2011, the Partnership sold 0.7 million common units through a private placement for net proceeds of $20.4 million (including the general partner's contribution). The net proceeds from the offering were used to partially finance the shipyard installments for the four Suezmax newbuilding shuttle tankers.

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet as of August 10, 2011.


---------------------------------------------------------------------------
                                            Number of Vessels              
                              ---------------------------------------------
                                          Chartered-                       
                                    Owned         in      Committed        
                                  Vessels    Vessels   Newbuildings   Total
                              ---------------------------------------------
Shuttle Tanker Segment               31(i)         5           4(ii)     40
Conventional Tanker Segment        10(iii)         -              -      10
FSO Segment                             5          -              -       5
FPSO Segment                            2          -              -       2
---------------------------------------------------------------------------
Total                                  48          5              4      57
---------------------------------------------------------------------------

(i)   Includes six shuttle tankers in which Teekay Offshore's interest is 50
      percent and three shuttle tankers in which Teekay Offshore's ownership
      is 67 percent.                                                    

(ii)  Includes four shuttle tanker newbuildings expected to deliver in mid-
      to late-2013 and commence operations under contracts with BG in     
      Brazil.                                                           

(iii) Reflects the sale of the Scotia Spirit in early August 2011.        


In early August 2011, the Partnership sold its 1993-built conventional Aframax tanker, the Scotia Spirit, to a third party buyer for net proceeds of $8.3 million. As a result of the early termination of the time-charter for this vessel, the Partnership will receive a termination fee of $2.1 million in the third quarter of 2011.

Future Growth Opportunities

Pursuant to an omnibus agreement that Teekay Offshore entered into in connection with its initial public offering in December 2006, Teekay Corporation (Teekay) is obligated to offer to the Partnership its interest in certain shuttle tankers, FSO units, floating production, storage and offloading (FPSO) units and joint ventures it may acquire in the future, provided the vessels are servicing contracts with remaining durations of three years or greater. The Partnership may also acquire other vessels that Teekay may offer it from time to time.

Shuttle Tankers

Teekay Offshore recently acquired two Aframax shuttle tanker newbuildings (the Amundsen Spirit and the Nansen Spirit) and committed to acquire one additional Aframax shuttle tanker newbuilding (the Peary Spirit) that delivered to the Partnership in early August 2011. Teekay is obligated to offer the Partnership a fourth shuttle tanker newbuilding (the Scott Spirit) within 365 days after its delivery, provided the vessel is servicing a charter contract with remaining durations of three years or greater.

FPSO Units

Pursuant to the omnibus agreement and a subsequent agreement, Teekay is obligated to offer to sell the Petrojarl Foinaven FPSO unit, an existing FPSO unit, which is owned by Teekay and operating under a long-term contract in the North Sea, to Teekay Offshore prior to July 9, 2012. The purchase price for the Petrojarl Foinaven FPSO unit would be at its fair market value plus any additional tax or other costs to Teekay that would be required to transfer the FPSO unit to the Partnership.

In October 2010, Teekay signed a long-term contract with Petrobras to provide a FPSO unit for the Tiro and Sidon fields located in the Santos Basin offshore Brazil. The contract with Petrobras will be serviced by a newly converted FPSO unit, named Petrojarl Cidade de Itajai. The new FPSO unit is scheduled to deliver in mid-2012, when it will commence operations under a nine-year, fixed-rate time-charter contract to Petrobras with six additional one-year extension options. Pursuant to the omnibus agreement, Teekay is obligated to offer to the Partnership its 50 percent interest in this FPSO project at Teekay's fully built-up cost, within 365 days after the commencement of the charter with Petrobras.

In May 2011, Teekay entered into a joint venture agreement with Odebrecht Oil & Gas S.A. (a member of the Odebrecht group) to jointly pursue FPSO projects in Brazil. Odebrecht is a well-established Brazil-based company that operates in the engineering and construction, petrochemical, bioenergy, energy, oil and gas, real estate and environmental engineering sectors, with over 120,000 employees and a presence in over 20 countries. As part of the joint venture agreement, Odebrecht is a 50 percent partner in the Tiro Sidon FPSO project and Teekay is currently working with Odebrecht on other FPSO project opportunities which, pursuant to the omnibus agreement, may result in the future sale of new FPSO units to the Partnership.

In June 2011, Teekay entered into a new contract with BG Norge Limited to provide a harsh weather FPSO unit for the Knarr oil and gas field located in the North Sea. The contract will be serviced by a newly-built FPSO unit to be constructed by Samsung Heavy Industries for a fully built-up cost of approximately $1 billion. Pursuant to the omnibus agreement, Teekay is obligated to offer to the Partnership its interest in this FPSO project at Teekay's fully built-up cost, within 365 days after the commencement of the charter, which is expected to be during the first quarter of 2014.

Financial Summary

The Partnership reported adjusted net income attributable to the partners(2) (as detailed in Appendix A to this release) of $26.2 million for the quarter ended June 30, 2011, compared to $18.9 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $37.5 million and $21.7 million for the quarters ended June 30, 2011 and 2010, respectively, as detailed in Appendix A. Including these items, the Partnership reported, on a GAAP basis, net loss attributable to the partners of $11.4 million for the second quarter of 2011, compared to a net loss of $2.8 million in the same period of the prior year. Net revenues(3) for the second quarter of 2011 increased to $201.6 million compared to $191.9 million in the same period of the prior year.

The Partnership reported adjusted net income attributable to the partners(2) (as detailed in Appendix A to this release) of $48.3 million for the six months ended June 30, 2011, compared to $39.0 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $36.2 million and $27.0 million for the six months ended June 30, 2011 and 2010, respectively, as detailed in Appendix A. Including these items, the Partnership reported, on a GAAP basis, net income attributable to the partners of $12.0 million for the six months ended June 30, 2011 and 2010. Net revenues(3) for the six months ended June 30, 2011 increased to $409.9 million compared to $390.5 million in the same period of the prior year.

For accounting purposes, the Partnership is required to recognize, through the consolidated statements of (loss) income, changes in the fair value of certain derivative instruments as unrealized gains or losses. This revaluation does not affect the economics of any hedging transactions or have any impact on the Partnership's actual cash flows or the calculation of its distributable cash flow.

The Partnership has recast its historical financial results to include the results of the Falcon Spirit FSO unit and the Cidade de Rio das Ostras (Rio das Ostras) FPSO unit relating to the periods prior to their acquisition by the Partnership from Teekay, and for which pre-acquisition results are referred to in this release as the Dropdown Predecessor. In accordance with GAAP, business acquisitions of entities under common control that have begun operations are required to be accounted for in a manner whereby the Partnership's financial statements are retroactively adjusted to include the historical results of the acquired vessels from the date the vessels were originally under the control of Teekay. For these purposes, the Falcon Spirit was under common control by Teekay from December 15, 2009 until April 1, 2010, when it was sold to the Partnership and the Rio das Ostras FPSO unit was under common control by Teekay from April 1, 2008 to October 1, 2010, when it was sold to the Partnership.

On October 1, 2010, Teekay Offshore agreed to acquire Teekay's interest in the newbuilding shuttle tanker Peary Spirit. Prior to its acquisition by the Partnership, this entity is considered a variable interest entity for accounting purposes. As a result, the Partnership's consolidated financial statements include the financial position, operating results and cash flow contribution of the Peary Spirit subsequent to October 1, 2010. The Peary Spirit was acquired by the Partnership in early August 2011.

(2) Adjusted net income attributable to the partners is a non-GAAP financial measure. Please refer to Appendix A included in this release for a reconciliation of this non-GAAP measure to the most directly comparable financial measure under GAAP and information about specific items affecting net income that are typically excluded by securities analysts in their published estimates of the Partnership's financial results.

(3) Net revenues represents revenues less voyage expenses, which comprise all expenses relating to certain voyages, including bunker fuel expenses, port fees, canal tolls and brokerage commissions. Net revenues is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies. Please see the Partnership's web site at www.teekayoffshore.com for a reconciliation of this non-GAAP measure as used in this release to the most directly comparable GAAP financial measure.

Operating Results

The following table highlights certain financial information for Teekay Offshore's four main segments: the Shuttle Tanker segment, the Conventional Tanker segment, the FSO segment, and the FPSO segment (please refer to the "Teekay Offshore's Fleet" section of this release above and Appendix C for further details).


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                                         Three Months Ended                
                                            June 30, 2011                  
                                             (unaudited)                   
                                       Conven-                              
                            Shuttle    tional                              
(in thousands of U.S.        Tanker    Tanker       FSO      FPSO          
 dollars)                   Segment   Segment   Segment   Segment     Total
---------------------------------------------------------------------------
Net revenues                113,471    30,915    14,626    42,561   201,573

Vessel operating expenses    42,109     6,012     7,411    19,665    75,197
Time-charter hire expense    18,182         -         -         -    18,182
Depreciation and                                                           
 amortization                28,704     5,557     2,991     8,911    46,163

Cash flow from vessel                                                      
 operations(1)               44,551    24,145     6,520    19,955    95,171
---------------------------------------------------------------------------

---------------------------------------------------------------------------
                                         Three Months Ended                
                                            June 30, 2010                  
                                             (unaudited)                   
                                       Conven-                            
                            Shuttle    tional                FPSO          
(in thousands of U.S.        Tanker    Tanker       FSO   Segment        
 dollars)                   Segment   Segment   Segment        (2)    Total
---------------------------------------------------------------------------
Net revenues                114,264    21,589    18,343    37,693   191,889

Vessel operating expenses    32,346     5,657     8,420    14,685    61,108
Time-charter hire expense    23,424         -         -         -    23,424
Depreciation and                                                           
 amortization                29,280     5,921     3,829     8,894    47,924

Cash flow from vessel                                                      
 operations(1)               49,343    14,793     9,404    15,513    89,053
---------------------------------------------------------------------------

(1) Cash flow from vessel operations represents income from vessel         
    operations before depreciation and amortization expense and            
    amortization of deferred gains, includes the realized gains (losse) on 
    the settlement of foreign exchange forward contracts and excludes the  
    cash flow from vessel operations relating to the Partnership's Dropdown
    Predecessor and adjusting for direct financing leases to a cash        
    basis.Cash flow from vessel operations is a non-GAAP financial measure 
    used by certain investors to measure the financial performance of      
    shipping companies.Please see the Partnership's web site at            
    http://www.teekayoffshore.com/ for a reconciliation of this non-GAAP   
    measure as used in this release to the most directly comparable GAAP   
    financial measure.                                                     

(2) Cash flow from vessel operations for the FPSO segment excludes the cash
    flow generated by the Rio das Ostras FPSO unit prior to its acquisition
    by the Partnership on October 1, 2010.Results for the Rio das Ostras   
    FPSO unit for the periods prior to its acquisition by the Partnership  
    when it was owned and operated by Teekay are included in the Dropdown  
    Predecessor.                                                           

Shuttle Tanker Segment

Cash flow from vessel operations from the Partnership's shuttle tanker segment decreased to $44.6 million for the second quarter of 2011 compared to $49.3 million for the same period of the prior year, primarily due to higher vessel operating expenses mainly relating to higher crewing and repairs and maintenance costs, the termination of the time-charter of the Basker Spirit in the first quarter of 2011, and lower revenue as a result of fewer revenue days from vessels operating under contracts of affreightment. This was partially offset by an increase in revenues due to the September 2010 amended master agreement with Statoil, which includes the contribution from the two newbuilding shuttle tankers, the Amundsen Spirit and Nansen Spirit (which were acquired during the fourth quarter of 2010) and lower time-charter hire expense due to the redelivery of two in-chartered vessels.

Conventional Tanker Segment

Cash flow from vessel operations from the Partnership's conventional tanker segment increased to $24.1 million in the second quarter of 2011 compared to $14.8 million for the same period of the prior year, primarily due to higher than normal net bunker revenues as a result of increases in bunker prices and a decrease in the number of off-hire days due to scheduled drydocking days.

FSO Segment

Cash flow from vessel operations from the Partnership's FSO segment decreased to $6.5 million in the second quarter of 2011 compared to $9.4 million for the same period of the prior year, primarily due to the sale of the Karratha Spirit FSO unit during the first quarter of 2011, and a lower charter rate for the Navion Saga that took effect in the second quarter of 2010 in accordance with its charter contract.

FPSO Segment

Cash flow from vessel operations from the Partnership's FPSO segment increased to $20.0 million for the second quarter of 2011 compared to $15.5 million for the same period of the prior year, primarily due to the acquisition of the Rio das Ostras FPSO unit in October 2010, partially offset by higher vessel operating expenses.

Liquidity

As of June 30, 2011, the Partnership had total liquidity of $294.0 million, which consisted of $158.6 million in cash and cash equivalents and $135.4 million in undrawn revolving credit facilities.

Conference Call

The Partnership plans to host a conference call on August 12, 2011 at 1:00 p.m. (ET) to discuss its results for the second quarter of 2011. An accompanying investor presentation will be available on Teekay Offshore's website at www.teekayoffshore.com prior to the start of the call. All shareholders and interested parties are invited to listen to the live conference call by choosing from the following options:


--  By dialing (866) 322-8032 or (416) 640-3406, if outside North America,
    and quoting conference ID code 4969510. 
--  By accessing the webcast, which will be available on Teekay Offshore's
    website at www.teekayoffshore.com (the archive will remain on the
    website for a period of 30 days).

The conference call will be recorded and available until August 19, 2011. This recording can be accessed following the live call by dialing (888) 203-1112 or (647) 436-0148, if outside North America, and entering access code 4969510.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P., a publicly-traded master limited partnership formed by Teekay Corporation (NYSE:TK), is an international provider of marine transportation, oil production and storage services to the offshore oil industry. Teekay Offshore owns 40 shuttle tankers (including five chartered-in vessels and four committed newbuildings), five FSO units, 10 conventional oil tankers, and two FPSO units. Teekay Offshore also has rights to participate in certain other FPSO and shuttle tanker opportunities provided by its sponsor, Teekay Corporation.

Teekay Offshore's common units trade on the New York Stock Exchange under the symbol "TOO".


---------------------------------------------------------------------------
                       TEEKAY OFFSHORE PARTNERS L.P.                       
              SUMMARY CONSOLIDATED STATEMENTS OF (LOSS) INCOME             
              (in thousands of U.S. dollars, except unit data)             
---------------------------------------------------------------------------

                           Three Months Ended           Six Months Ended   
                    June 30,   March 31,    June 30,    June 30,    June 30,
                       2011        2011      2010(1)       2011   2010(1)(2)
                 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)

REVENUES            234,145     233,771     226,838     467,916     460,417
---------------------------------------------------------------------------

OPERATING EXPENSES                                                         
Voyage expenses      32,572      25,465      34,949      58,037      69,903
Vessel operating                                                           
 expenses(3)         75,197      75,130      61,108     150,327     124,496
Time-charter hire                                                          
 expense             18,182      20,270      23,424      38,452      48,462
Depreciation and                                                           
 amortization        46,163      45,570      47,924      91,733      92,932
General and                                                                
 administrative(3)   18,157      18,730      16,347      36,887      32,981
Loss on sale of                                                            
 vessel                   -         171           -         171           -
Write-down of vessel  8,194         900           -       9,094           -
Restructuring charge                                                       
 (4)                      -       3,924           -       3,924         119
---------------------------------------------------------------------------
                    198,465     190,160     183,752     388,625     368,893
---------------------------------------------------------------------------
Income from vessel                                                         
 operations          35,680      43,611      43,086      79,291      91,524
---------------------------------------------------------------------------
OTHER ITEMS                                                                
Interest expense     (8,890)     (8,469)     (9,326)    (17,359)    (19,206)
Interest income         150         129         238         279         403

Realized and                                                               
 unrealized (loss)                                                         
 gain on derivative                                                        
 instruments(5)     (38,720)     10,840     (57,863)    (27,880)    (82,338)
Foreign exchange                                                           
 gain (loss)(6)         367        (799)      2,249        (432)      3,871
Income tax (expense)                                                       
 recovery            (3,037)     (2,653)     10,453      (5,690)     17,364
Other income - net    1,159       1,310       1,409       2,469       3,890
---------------------------------------------------------------------------
Net (loss) income   (13,291)     43,969      (9,754)     30,678      15,508
---------------------------------------------------------------------------
Net (loss) income                                                          
 attributable to:                                                          
 Non-controlling                                                           
  interests          (1,937)     20,593      (7,572)     18,656       3,277
 Dropdown                                                                  
  Predecessor(1)(2)       -           -         653           -         186
 Partners           (11,354)     23,376      (2,835)     12,022      12,045
Limited partners'                                                          
 units outstanding:                                                        
Weighted-average                                                           
 number of common                                                          
 units outstanding                                                         
 - Basic and
  diluted        62,800,314  57,170,219  42,760,000  60,000,819  40,495,580
Total units                                                                
 outstanding at
 end of period   62,800,314  62,800,314  42,760,000  62,800,314  42,760,000
---------------------------------------------------------------------------

(1) Results for the Rio das Ostras FPSO unit for the period beginning in   
    April 2008 prior to its acquisition by the Partnership in October 2010 
    when it was owned and operated by Teekay Corporation, are included in  
    the Dropdown Predecessor.

(2) Results for the Falcon Spirit FSO unit for the period beginning in     
    December 2009 prior to its acquisition by the Partnership in April 2010
    when it was owned and operated by Teekay Corporation, are included in  
    the Dropdown Predecessor.

(3) The Partnership has entered into foreign exchange forward contracts,   
    which are economic hedges for certain vessel operating expenses and    
    general and administrative expenses. Certain of these forward contracts
    have been designated as cash flow hedges pursuant to GAAP. Unrealized  
    (losse) gains arising from hedge ineffectiveness from such forward     
    contracts, including forward contracts relating to the Dropdown        
    Predecessor, are reflected in vessel operating expenses, and general   
    and administrative expenses in the above Summary Consolidated          
    Statements of (Lo) Income as detailed in the table below:

                               Three Months Ended        Six Months Ended  
                         --------------------------------------------------
                            June 30, March 31,  June 30,  June 30,  June 30,
                               2011      2011      2010      2011      2010
                         --------------------------------------------------
 Vessel operating                                                          
  expenses                      (83)     (184)   (1,198)     (267)   (2,322)
 General and                                                               
  administrative                 69       130      (840)      199    (1,554)

(4) Restructuring charges for the three months ended March 31, 2011 were   
    incurred in connection with the sale of an FSO unit and the termination
    of the charter contract of one of the Partnership's shuttle tankers.   
    Restructuring charges for the six months ended June 30, 2010 were      
    incurred in connection with the re-flagging of certain of the          
    Partnership's shuttle tankers.

(5) The realized (losses) gains relate to the amounts the Partnership      
    actually paid or received to settle such derivative instruments and the
    unrealized (losses) gains relate to the change in fair value of such   
    derivative instruments as detailed in the table below:

                               Three Months Ended        Six Months Ended  
                         --------------------------------------------------
                            June 30, March 31,  June 30,  June 30,  June 30,
                               2011      2011      2010      2011      2010
                         --------------------------------------------------
Realized (losses) gains                                                    
 relating to:                                                              
 Interest rate swaps        (13,769)  (13,702)  (12,057)  (27,471)  (24,844)
 Foreign currency forward                                                  
  contract                    1,204       418      (340)    1,622      (495)
                         --------------------------------------------------
                            (12,565)  (13,284)  (12,397)  (25,849)  (25,339)
                         --------------------------------------------------
Unrealized (losses) gains                                                  
 relating to:                                                              
 Interest rate swaps        (26,969)   20,765   (42,190)   (6,204)  (53,139)
 Foreign currency forward                                                  
  contracts                     814     3,359    (3,276)    4,173    (3,860)
                         --------------------------------------------------
                            (26,155)   24,124   (45,466)   (2,031)  (56,999)
                         --------------------------------------------------
Total realized and                                                         
 unrealized (losses)                                                       
 gains on non-designated                                                   
 derivative instruments     (38,720)   10,840   (57,863)  (27,880)  (82,338)
                         --------------------------------------------------

(6) Foreign exchange gain (loss) includes realized gains of $0.8 million   
    and $1.4 million, for the three and six months ended June 30, 2011,    
    respectively, relating to the amounts the Partnership received to      
    settle the Partnership's non-designated cross currency swap that was   
    entered into as an economic hedge in relation to the Partnership's NOK 
    600 million unsecured bond. Foreign exchange gain (loss) also includes 
    unrealized gains of $3.1 million and $9.4 million for the three and six
    months ended June 30, 2011, respectively, relating to the change in    
    fair value of such derivative instrument, partially offset by $3.1     
    million and $8.4 million in unrealized losses on the revaluation of the
    NOK bond for the three and six months ended June 30, 2011,             
    respectively.


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                       TEEKAY OFFSHORE PARTNERS L.P.                       
                    SUMMARY CONSOLIDATED BALANCE SHEETS                    
                       (in thousands of U.S. dollars)                      
---------------------------------------------------------------------------

                                             As at       As at        As at
                                           June 30,   March 31, December 31,
                                              2011        2011         2010
                                        (unaudited) (unaudited)  (unaudited)
ASSETS                                                                     
Cash and cash equivalents                  158,644     123,422      166,483
Vessels held for sale                        8,300           -            -
Other current assets                       163,318     156,946      142,493
Vessels and equipment                    2,302,656   2,218,025    2,247,323
Advances on newbuilding contracts           44,600      53,670       52,184
Other assets                                71,468      75,501       78,267
Intangible assets                           25,203      26,983       28,763
Goodwill                                   127,113     127,113      127,113
---------------------------------------------------------------------------
Total Assets                             2,901,302   2,781,660    2,842,626
---------------------------------------------------------------------------
LIABILITIES AND EQUITY                                                     
Accounts payable and accrued                                               
 liabilities                                90,121     101,491      101,287
Other current liabilities                  183,793     145,511      113,183
Current portion of long-term debt          202,677     137,468      152,096
Long-term debt                           1,714,458   1,667,768    1,565,044
Other long-term liabilities                144,718     117,483      140,842
Redeemable non-controlling interest         39,604      40,614       41,725
Equity:                                                                    
 Non-controlling interest                   46,703      48,323      170,876
 Partners' equity                          479,228     523,002      557,573
---------------------------------------------------------------------------
Total Liabilities and Equity             2,901,302   2,781,660    2,842,626
---------------------------------------------------------------------------


---------------------------------------------------------------------------
                       TEEKAY OFFSHORE PARTNERS L.P.                       
               SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS               
                       (in thousands of U.S. dollars)                      
---------------------------------------------------------------------------

                                                   Six Months Ended June 30,
                                                           2011      2010(1)
                                                     (unaudited) (unaudited)
Cash and cash equivalents provided by (used for)                           
OPERATING ACTIVITIES                                                       
---------------------------------------------------------------------------
Net operating cash flow                                 152,506     147,017
---------------------------------------------------------------------------

FINANCING ACTIVITIES                                                       
Proceeds from drawdown of long-term debt                311,472      81,600
Scheduled repayments of long-term debt                  (69,429)    (50,398)
Prepayments of long-term debt                           (50,360)   (150,048)
Advance from joint venture partner                       14,500           -
Repayment of long-term debt relating to Dropdown                           
 Predecessor relating to Falcon Spirit                        -     (32,834)
Contribution by Teekay Corporation relating to                             
 acquisition of Rio das Ostras                            2,000           -
Distribution to Teekay Corporation for the                                 
 acquisition of Falcon Spirit                                 -     (11,295)
Equity contribution from Teekay Corporation                   -       5,020
Purchase of 49% interest in Teekay Offshore                                
 Operating L.P.                                        (160,000)          -
Equity contribution from Teekay Corporation to                             
 Dropdown Predecessor relating to Falcon Spirit               -         805
Equity contribution from joint venture partner            2,250         333
Proceeds from issuance of common units                        -     100,581
Expenses of equity offerings                                (91)     (5,043)
Cash distributions paid by the Partnership              (61,335)    (39,126)
Cash distributions paid by subsidiaries to non-                            
 controlling interests                                  (19,642)    (42,968)
Other                                                         -        (523)
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Net financing cash flow                                 (30,635)   (143,896)
---------------------------------------------------------------------------

INVESTING ACTIVITIES                                                       
Expenditures for vessels and equipment                 (145,611)     (4,813)
Proceeds from sale of vessels and equipment               5,054           -
Investment in direct financing lease assets                 370        (886)
Direct financing lease payments received                 10,477      11,607
---------------------------------------------------------------------------
Net investing cash flow                                (129,710)      5,908
---------------------------------------------------------------------------

(Decrease) increase in cash and cash equivalents         (7,839)      9,029
Cash and cash equivalents, beginning of the period      166,483     109,407
---------------------------------------------------------------------------
Cash and cash equivalents, end of the period            158,644     118,436
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) In accordance with GAAP, the Summary Consolidated Statements of Cash   
    Flows includes the cash flows relating to the Falcon Spirit FSO unit,  
    for the period from December 15, 2009 to April 1, 2010 and the Rio das 
    Ostras FPSO unit, for the period from April 1, 2008 to October 1, 2010,
    when the vessels were under the common control of Teekay Corporation,  
    but prior to their acquisition by the Partnership.                     


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                  TEEKAY OFFSHORE PARTNERS L.P.
       APPENDIX A - SPECIFIC ITEMS AFFECTING NET (LOSS) INCOME
                   (in thousands of U.S. dollars)
---------------------------------------------------------------------------

Set forth below is a reconciliation of the Partnership's unaudited adjusted
net income attributable to the partners, a non-GAAP financial measure, to
net (loss) income attributable to the partners as determined in accordance
with GAAP. The Partnership believes that, in addition to conventional
measures prepared in accordance with GAAP, certain investors use this
information to evaluate the Partnership's financial performance. The items
below are also typically excluded by securities analysts in their published
estimates of the Partnership's financial results. Adjusted net income
attributable to the partners is intended to provide additional information
and should not be considered a substitute for measures of performance
prepared in accordance with GAAP.

---------------------------------------------------------------------------
                                 Three Months Ended     Six Months Ended   
                                June 30,    June 30,    June 30,    June 30,
                                   2011        2010        2011        2010
                             (unaudited) (unaudited) (unaudited) (unaudited)
Net (loss) income - GAAP basis  (13,291)     (9,754)     30,678      15,508
 Net loss (income) attributable                                            
  to non-controlling interests    1,937       7,572     (18,656)     (3,277)
 Net income (loss) attributable                                            
  to Dropdown Predecessor             -        (653)          -        (186)
---------------------------------------------------------------------------
Net (loss) income attributable                                             
 to the partners                (11,354)     (2,835)     12,022      12,045
Add (subtract) specific items                                              
 affecting net (loss) income:                                              
 Foreign exchange losses(1)         411       1,200       1,875         564
 Foreign currency exchange                                                 
  losses resulting from hedging                                            
  ineffectiveness(2)                 14       2,052          68       3,912
 Deferred income tax expense                                               
  (recovery) relating to                                                   
  unrealized foreign exchange                                              
  gains(3)                        3,577     (10,997)     10,096     (14,206)
 Unrealized losses on                                                      
  derivative instruments(4)      26,155      44,762       2,031      55,912
 Loss on sale of vessel(5)            -           -         171           -
 Write-down of vessel(6)          8,194           -       9,094           -
 Restructuring charges and                                                 
  other(7)                            -       3,634       4,873       3,753
 Non-controlling interests'                                                
  share of items above             (810)    (18,924)      8,039     (22,943)
---------------------------------------------------------------------------
Total adjustments                37,541      21,727      36,247      26,992
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Adjusted net income                                                        
 attributable to the partners    26,187      18,892      48,269      39,037
---------------------------------------------------------------------------

(1) Foreign exchange losses primarily relate to the Partnership's          
    revaluation of all foreign currency-denominated monetary assets and    
    liabilities based on the prevailing exchange rate at the end of each   
    reporting period, excluding amounts related to Dropdown Predecessor,   
    and the realized gains relating to the cross currency swap.            

(2) Foreign currency exchange losses resulting from hedging ineffectiveness
    include the unrealized losses arising from hedge ineffectiveness from  
    foreign exchange forward contracts that are or have been designated as 
    hedges for accounting purposes. This excludes foreign currency exchange
    gains resulting from hedging ineffectiveness relating to the Dropdown  
    Predecessors of $0.01 million and $0.04 million, for the three and six 
    months ended June 30, 2010, respectively.                              

(3) Portion of deferred income tax expense (recovery) related to unrealized
    foreign exchange gains and losses.                                     

(4) Reflects the unrealized losses due to changes in the mark-to-market    
    value of interest rate swaps and foreign exchange forward contracts    
    that are not designated as hedges for accounting purposes, excluding   
    unrealized losses of $0.7 million and $1.1 million relating to the     
    Dropdown Predecessors for the three and six months ended June 30, 2010,
    respectively.                                                          

(5) Loss on sale of vessel relates to the sale of the Karratha Spirit FSO  
    unit.                                                                  

(6) Write-down of vessel is related to the valuation impairment of one     
    conventional tanker based on its estimated sales price.                

(7) Restructuring charges of $3.9 million for the six months ended June 30,
    2011 were incurred in connection with the sale of a FSO unit and the   
    termination of the charter contract of one of the Partnership's shuttle
    tankers. Restructuring charges of $0.1 million for the six months ended
    June 30, 2010 were incurred in connection with the re-flagging of      
    certain of the Partnership's vessels. Other items for the six months   
    ended June 30, 2011 include $0.9 million related to a one-time         
    management fee associated with the portion of stock-based compensation 
    grants of Teekay's former Chief Executive Officer that had not yet     
    vested prior to the date of his retirement on March 31, 2011.Other     
    items for the three months ended June 30, 2010 include $3.6 million    
    relating to adjustments to the carrying value of certain capitalized   
    drydocking expenditures and non-recurring adjustments to tax accruals. 


---------------------------------------------------------------------------
                     TEEKAY OFFSHORE PARTNERS L.P.
          APPENDIX B - RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
                    (in thousands of U.S. dollars) 
---------------------------------------------------------------------------

Description of Non-GAAP Financial Measure - Distributable Cash Flow (DCF)

Distributable cash flow represents net income adjusted for depreciation and
amortization expense, non-controlling interest, non-cash items, estimated
maintenance capital expenditures, gains and losses on vessel sales,
unrealized gains and losses from derivatives, income (loss) from variable
interest entities, non-cash income taxes, loss on write down of vessels and
unrealized foreign exchange related items. Maintenance capital expenditures
represent those capital expenditures required to maintain over the
long-term the operating capacity of, or the revenue generated by, the
Partnership's capital assets. Distributable cash flow is a quantitative
standard used in the publicly-traded partnership investment community to
assist in evaluating a partnership's ability to make quarterly cash
distributions. Distributable cash flow is not defined by GAAP and should
not be considered as an alternative to net (loss) income or any other 
indicator of the Partnership's performance required by GAAP. The table
below reconciles distributable cash flow to net (loss) income for the
quarter.

---------------------------------------------------------------------------
                                                         Three Months Ended
                                                              June 30, 2011
                                                                 (unaudited)
---------------------------------------------------------------------------

Net loss                                                            (13,291)
Add (subtract):                                                            
 Depreciation and amortization                                       46,163
 Write-down of vessel                                                 8,194
 Foreign exchange and other, net                                      1,579
 Deferred income tax expense                                          2,680
 Estimated maintenance capital expenditures                         (25,793)
 Unrealized losses on non-designated derivative                            
  instruments(1)                                                     26,155
---------------------------------------------------------------------------
Distributable Cash Flow before Non-Controlling Interest              45,687
 Non-controlling interests' share of DCF                             (3,097)
---------------------------------------------------------------------------
Distributable Cash Flow                                              42,590
---------------------------------------------------------------------------

(1) Derivative instruments include interest rate swaps and foreign exchange
    forward contracts.                                                     


---------------------------------------------------------------------------
                       TEEKAY OFFSHORE PARTNERS L.P.
                  APPENDIX C - SUPPLEMENTAL SEGMENT INFORMATION
                        (in thousands of U.S. dollars)
---------------------------------------------------------------------------

                             Three Months Ended June 30, 2011              
                                        (unaudited)                        
                  Shuttle  Conventional                                
                   Tanker        Tanker        FSO         FPSO            
                  Segment       Segment     Segment     Segment       Total

---------------------------------------------------------------------------
Net revenues(1)   113,471        30,915      14,626      42,561     201,573
Vessel                                                                     
 operating                                                                 
 expenses          42,109         6,012       7,411      19,665      75,197
Time-charter                                                               
 hire expense      18,182             -           -           -      18,182
Depreciation                                                               
 and                                                                       
 amortization      28,704         5,557       2,991       8,911      46,163
General and                                                                
 administrative    13,197           758       1,242       2,960      18,157
Write-down of                                                              
 vessel                 -         8,194           -           -       8,194
---------------------------------------------------------------------------
Income from                                                                
 vessel                                                                    
 operations        11,279        10,394       2,982      11,025      35,680
---------------------------------------------------------------------------

                             Three Months Ended June 30, 2010              
                                        (unaudited)                        
                  Shuttle  Conventional                                    
                  Tanker         Tanker         FSO        FPSO        
                  Segment       Segment     Segment   Segment(2)      Total

---------------------------------------------------------------------------
Net revenues(1)   114,264        21,589      18,343      37,693     191,889
Vessel                                                                     
 operating                                                                 
 expenses          32,346         5,657       8,420      14,685      61,108
Time-charter                                                               
 hire expense      23,424             -           -           -      23,424
Depreciation                                                               
 and                                                                       
 amortization      29,280         5,921       3,829       8,894      47,924
General and                                                                
 administrative    11,603         1,139       1,009       2,596      16,347
---------------------------------------------------------------------------
Income from                                                                
 vessel                                                                    
 operations        17,611         8,872       5,085      11,518      43,086
---------------------------------------------------------------------------

(1) Net revenues represents revenues less voyage expenses, which comprise  
    all expenses relating to certain voyages, including bunker fuel        
    expenses, port fees, canal tolls and brokerage commissions.Net revenues
    are a non-GAAP financial measure used by certain investors to measure  
    the financial performance of shipping companies.Please see the         
    Partnership's web site at http://www.teekayoffshore.com/ for a         
    reconciliation of this non-GAAP measure as used in this release to the 
    most directly comparable GAAP financial measure.                       

(2) Income from operations for the Rio das Ostras FPSO unit for the periods
    prior to its acquisition by the Partnership on October 1, 2010 when it 
    was owned and operated by Teekay Corporation are required by GAAP to be
    included in Teekay Offshore's results for such prior periods.The       
    amounts included in this release related to the Rio das Ostras FPSO    
    Dropdown Predecessor figures are only expected to impact the accounting
    for periods prior to the date the Rio das Ostras FPSO was acquired by  
    the Partnership, and therefore will have no effect on the adjusted net 
    income attributable to the partners or distributable cash flow of the  
    Partnership for any period, including the second quarter of 2010.      

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management's current views with respect to certain future events and performance, including statements regarding: the Partnership's future growth prospects, cash flows and distributions to unitholders; the timing of delivery of the four newbuilding shuttle tankers and expected future increase in the Partnership's distributable cash flow as a result of the new long-term contract with BG in Brazil; the industry fundamentals for deepwater offshore oil production, storage and transportation; the potential for Teekay to offer additional vessels to the Partnership and the Partnership's acquisition of any such vessels, including the Petrojarl Foinaven FPSO unit, the Petrojarl Cidade de Itajai FPSO unit, the Scott Spirit newbuilding Aframax shuttle tanker, and the newbuilding FPSO unit that will service the Knarr field under contract with BG Norge Limited; and the potential for the Partnership to acquire other vessels or offshore projects from Teekay or third parties. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: vessel operations and oil production volumes; significant changes in oil prices; variations in expected levels of field maintenance; increased operating expenses; variability in shuttle tanker tonnage requirements under the Statoil master agreement; different-than-expected levels of oil production in the North Sea offshore fields; potential early termination of contracts, including the Rio das Ostras FPSO time-charter contract and the Statoil master agreement; failure of Teekay to offer to the Partnership additional vessels; the inability of the joint venture between Teekay and Odebrecht to secure new Brazil FPSO projects that may be offered for sale to the Partnership; failure to obtain required approvals by the Conflicts Committee of Teekay Offshore's general partner to acquire to acquire other vessels or offshore projects from from Teekay or third parties; the Partnership's ability to raise financing for the BG newbuilding shuttle tankers and/or to purchase additional assets; failure to secure a new contract in excess of three years for the Scott Spirit shuttle tanker newbuilding; and other factors discussed in Teekay Offshore's filings from time to time with the SEC, including its Report on Form 20-F for the fiscal year ended December 31, 2010. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

Contact Information

  • Teekay Offshore Partners L.P.
    Kent Alekson
    Investor Relations Enquiries
    +1 (604) 609-6442
    www.teekayoffshore.com